Wednesday, 06 July 2016 11:55

Fight for SFF goes on and on

Written by  David Anderson
Silver Ferns Farms chairman Rob Hewitt (right) and chief executive Dean Hamilton (pictured) are confident of getting the Shanghai Maling deal over the line. Silver Ferns Farms chairman Rob Hewitt (right) and chief executive Dean Hamilton (pictured) are confident of getting the Shanghai Maling deal over the line.

Drama and dirty fighting are nothing new in the New Zealand meat sector.

However, the battle over the proposed merger between Silver Fern Farms (SFF) and Chinese Investor Shanghai Maling (SM) is showing no sign of abating or coming to an end. In fact, it is likely to be prolonged with an extension to the Overseas Investment Office (OIO) deadline (OIO approval is needed for the deal to proceed) and resultant delay in the deal being finalised.

Claim and counter-claim continue to go on between a well-moneyed, politically aligned, minority group of dissident shareholders opposed to the deal, and the SFF board and its management hell-bent on proceeding with the JV.

This dissident shareholder group is led by an ex Vietnam-based, British merchant banker who is one of SFF's largest shareholders -- John Shrimpton, and a former MIE member, Blair Gallagher. The dissidents are supported by other MIE associates and by the nationalist political party NZ First.

Shrimpton and co are currently running meetings to drum up support among shareholders to overturn the deal, and NZ First leader Winston Peters is simultaneously also trying to stir up political debate to oppose it.

Supporters of the dissidents claim there is "no known contact between the requisitioners and NZ First". However, clear linkages are widely known around the sector and both are promoting eerily similar 'concerns' regarding the deal.

One of the Shrimpton/NZ First claims is about the size of the cash injection by Shanghai Maling into SFF. The dissidents say only $50 million will be injected into the business, not $261m as believed. Shareholders attending meetings in Gore and Balclutha in late June were told this by Shrimpton and it was repeated by NZ First in a media release on June 22.

However, SFF chief executive Dean Hamilton told Rural News that although he did not attend these meetings (neither did Peters) this assertion was quite wrong.

"Shanghai Maling will invest $261m to acquire 50% of Silver Fern Farms Ltd (currently named Silver Fern Farms Beef Ltd). Of this, $57m will be returned to the co-operative and $204m will be retained within Silver Fern Farms to pay down debt and be available for investment."

Meanwhile, Hamilton says a claim by both the dissidents and NZ First that the meeting in October 2015 did not meet threshold for a special resolution is also incorrect.

"Despite repeated public corrections by ourselves, the voting threshold for a special resolution by Silver Fern Farms (equally the test required under the Companies Act) is 75% of those eligible to vote AND voting," he explained.

"Voting is not compulsory. It is NOT 75% of all shares, only those actually voting. At our meeting in October last year, 82.2% of all shares that were voted, did vote in favour of the Shanghai Maling investment. That is the measure."

Another claim made by Shrimpton and co is that if the deal with Shanghai Maling proceeds, the new company will close the Fairton and Waitane plants. This is contained in material given to shareholders at the dissidents' meetings.

Hamilton told Rural News he had not seen this 'material' and SFF has not been provided with a copy.

"We operated 19 plants this season. With the relocation of our Islington venison plant (previously announced due to the expiry of its lease) to be rebuilt at our Pareora plant, we will have 18 plants next season. There are no confirmed plans to shut down either our Fairton or Waitane plants."

However he did concede that SFF "will continue to periodically review our plant network to ensure it is fit for purpose and as efficient as it can be – as any prudent manufacturer would do".

When asked why this material (on the potential plant closures) was given to SM and had not communicated by SFF to shareholders, Hamilton said it was part of the due diligence carried out by potential investors and not approved SFF policy.

"Shanghai Maling and the other interested parties – who conducted due diligence over a 4-5 month period in 2015 – were provided with information to allow them to assess the company as is normal in these investment processes," he explained.

"Amongst the many hundreds of questions asked by potential investors, Shanghai Maling asked what the management thought the future years might look like AFTER the Shanghai Maling investment. Management provided high level projections with examples of what that capital could be used for, including accelerating the value added strategy and rationalising plants.

"It was made clear that these were projections only, and not board approved. The options are not board approved and are not available to Silver Fern Farms without significant capital investment and therefore are not applicable."

Another of the dissident group's oft-repeated claims is that the SFF board did not properly inform shareholders, prior to the vote last October, about the company's real financial performance and position.

However, Hamilton dismisses this allegation and says the recent Financial Markets Authority (FMA) investigation backs this.

"We disclosed all the relevant information in the shareholder materials and the FMA has confirmed that there was nothing misleading or deceptive in those materials."

Meanwhile, recent media reports are now claiming that the banks are putting heat on all meat companies to reduce their debt loadings. This is a point of conjecture, the dissidents claiming SFF's financial position was not as bad as claimed by the company prior to last year's special meeting which approved the SM joint venture.

When asked what the banks' reaction would be if the deal was scuppered either by OIO rejection or shareholder pressure (via the Shrimpton Group) at the next special meeting, Hamilton told Rural News that SFF's lenders support the investment by Shanghai Maling and are "keen to have it completed, and for the partnership to commence, as soon as practicable".

"I can't comment on what the lenders would or would not do if the transaction was not approved by the OIO," he says.

"The special meeting is one requisitioned by a small group of shareholders. By law, the outcome of that vote is not binding on the company; however we are required to hold the meeting. The board firmly believes it has strong shareholder support for the investment following the 82.2% vote in support last October."

Meantime, Hamilton says there has been no shareholder pressure on the company to pull out of the deal, despite the dissident group being out and about pushing for this.

"Not at all; and the board firmly believes it has strong shareholder support for the investment following the 82.2% vote in support in October 2015.

"We continue to receive support for that and, in fact, we believe there is growing frustration among a number of shareholders concerning the disruptive and negative approach by Mr Shrimpton and Mr Gallagher to a transaction already approved."

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